1992 (9) TMI 135 - AT - Income Tax

Tribunal upholds CIT's revisionary orders for multiple assessment years; rejects assessee's arguments on partnership validity and income deduction.

M MANICKRAO. Versus INCOME TAX OFFICER.

M MANICKRAO. Versus INCOME TAX OFFICER. - TTJ 046, 260, Issues Involved:1. Validity of the partnership between the assessee HUF and Shri M. Manik Rao (individual).2. Claim of deduction for 50% of the income as belonging to Shri M. Manik Rao (individual) by overriding title.3. Difference in assets and liabilities in the balance sheet.4. Validity of the revisionary orders under Section 263 of the IT Act.Detailed Analysis:1. Validity of the Partnership:The primary issue was whether a valid partnership existed between the assessee HUF and Shri M. Manik Rao (individual). The Tribunal noted that after the death of Shri Veereshalingam, no new partnership deed was executed. The assessee argued that the business should be deemed to have continued as a partnership between the HUF and Shri M. Manik Rao (individual) based on the capital investment. However, the Tribunal rejected this argument, stating that there was no partnership deed to validate such a claim. The Tribunal cited the Allahabad High Court decision in Mohan Lal Shyam Lal, which held that a partnership cannot be formed by the same individual in two different capacities without a valid partnership deed. The Tribunal also referenced the Patna High Court's decision in Lokenath Prasad Dhandhania vs. CIT, which was approved by the Privy Council, to support their conclusion that such a partnership is invalid.2. Claim of Deduction for 50% Income by Overriding Title:The assessee claimed that 50% of the business income should be deducted as it belonged to Shri M. Manik Rao (individual) by overriding title. The Tribunal examined this claim and found it baseless. They noted that there was no contract or legal event that created an overriding title in favor of Shri M. Manik Rao (individual). The Tribunal referenced the Supreme Court decision in CIT vs. Imperial Chemical Industries (India) (P) Ltd., which stated that an overriding title must be created by either act of parties or operation of law. The Tribunal concluded that merely inheriting the capital of Shri Veereshalingam does not automatically entitle Shri M. Manik Rao (individual) to a share of the business income. They also cited CIT vs. Sitaldas Tirathdas, which clarified that an overriding title requires the income to be diverted before it reaches the assessee.3. Difference in Assets and Liabilities:The CIT noted discrepancies in the balance sheet for the assessment years 1982-83 and 1983-84, which the assessee argued were carried over from previous years. The Tribunal agreed with the CIT's observation that these differences should have been treated as part of the assessee's income. The Tribunal upheld the CIT's decision to set aside the assessments and directed the ITO to re-examine the assessments according to law.4. Validity of the Revisionary Orders under Section 263:The Tribunal found that the revisionary orders passed under Section 263 of the IT Act were valid. They noted that the CIT had correctly identified errors in the original assessments that were prejudicial to the interest of the Revenue. The Tribunal dismissed the assessee's appeals, stating that the CIT's orders to redo the assessments were justified.Conclusion:The Tribunal upheld the CIT's revisionary orders for the assessment years 1982-83, 1983-84, 1985-86, and 1986-87. They rejected the assessee's arguments regarding the validity of the partnership and the claim of deduction for 50% of the income by overriding title. The Tribunal also supported the CIT's decision to address discrepancies in the balance sheet and found no merit in the assessee's appeals.